Termination notice — Effectiveness — Breach of covenant — Express wording of clause — Error in drafting — Unilateral mistake — Whether defendant issuing valid termination notice — Claim allowed
The claimants were the landlords of business premises, the first floor of which was let to the defendant company under a five-year lease from June 2001 at an annual rent of £66,024.
Clause 10 of the lease provided: “Either party shall be entitled by giving not less than six months’ notice in writing to the other to terminate this lease at the end of the third year of the term… and provided that up to the termination date in the case of a notice given by the landlord the tenant shall have paid the rents hereby reserved and shall have duly observed and performed the covenants on the part of the tenant…”
The defendant gave notice purporting to terminate the lease pursuant to that clause on the basis that it was unconditional. The claimants brought proceedings disputing the effectiveness of the notice on the grounds that the defendant was in breach of its obligations under the lease as at the termination date.
The question for the court was whether the defendant’s right to terminate was conditional upon it having duly observed and performed its covenants. The difficulty for the claimants was that the express wording in clause 10 applied only “in the case of a notice given by the landlord”. The claimants contended that, on their true construction, those words should be read as if they said “in the case of a notice given by the tenant” or, “in the case of a notice given to the landlord”. Alternatively, clause 10 should be rectified so as to convey that interpretation.
Held: The claim was allowed.
Clause 10 as it stood was absurd. There was no reason to make the exercise by the landlord of its right to terminate conditional upon the tenant performing its obligations. It was obvious not only that a mistake had been made in the drafting of the lease but also what that mistake was. The court would accordingly read the words “in the case of a notice given by the landlord” as “in the case of a notice given by the tenant”: Holding & Barnes plc v Hill House Hammond Ltd [2001] EWCA 1334 and JIS (1974) Ltd v MCP Investment Nominees I Ltd (Construction of lease) [2003] EWCA Civ 721 referred to.
Had it been necessary to decide the point, it would have been unconscionable for the defendant to have resisted the rectification sought. The claimants had sought rectification based upon a unilateral mistake. They had established their intention that the defendant’s right to break should be conditional and erroneously believed that the lease contained a provision to that effect. Moreover, the defendant had been aware that the failure to include such a provision resulted from a mistake and it had omitted to draw it to the claimants’ notice. Furthermore, the mistake benefited the defendant and was detrimental to the claimant: Thomas Bates & Son Ltd v Wyndhams (Lingerie) Ltd [1981] 1 EGLR 91; (1980) 257 EG 381 considered.
Andrew Ayres (instructed by DLA piper Rudnick Gray Cary LLP) appeared for the claimants; Kelvin Rutledge (instructed by Nicholas & Co) appeared for the defendant.
Eileen O’Grady, barrister
